Supporting the Financial System by Bleeding the 'Real' Economy

I am in the highly unusual position of agreeing with Krugman (or at least in part), the Nobel winning economist who writes in the New York Times. He has just recently written an op-ed on the subject of the huge profits being achieved by Goldman Sachs (GS) ($US 3.4 billion), and says the following:

The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong.

Inevitably, the massive bonuses that Goldman are about to distribute are a major point of the controversy. However, whilst this is all good populist material, the focus should be on a system in which the banks were bailed out in the first place. As Krugman identifies, it is a case of 'heads they win, tails other people lose'.

Krugman, I recall, was in favour of 'saving' the financial system, as were many others. What we are now seeing is the result of the 'salvation' of the system. The banks that took huge bad bets are now appearing to make large profits.

Regarding Goldman Sachs as the evil in the machine, the populist mantra of the day, I will not criticise them. Provided that they act in the law, their duty is to do the best possible for their shareholders, and also their employees. Goldman Sachs are simply doing a very effective job within a framework that allows them so much leeway. They are no different from GM in holding out their hand for government support, but are simply more effective at doing so. Goldman Sachs are just a symptom, and are certainly not the cause of the problem. It is not their role that should be subject to criticism, but the government and the Federal Reserve - it is the state that is the problem. It is the state that is at the root of the appearance of the bumper profits and bonuses at Goldman Sachs.

I say 'appearing', as there are real question marks over how 'real' these profits actually are. The bailout of AIG has been linked to an indirect bailout of Goldman Sachs, for example by the bane of Goldman Matt Taibbi of Rolling Stone magazine. On top of AIG, it is not clear how much Goldman has been bailed out by the various programs that have been enacted to remove toxic assets from the balance sheets of banks, as the recipients of such bailouts is shrouded in secrecy. There are also the changes in accounting rules have allowed banks to do some extraordinary accounting tricks:

During the financial crisis, the market prices of many securities, particularly those backed by subprime home mortgages, have plunged to fractions of their original prices. That has forced banks to report hundreds of billions of dollars in losses over the last year, because some of those securities must be reported at market value each three months, with the bank showing a profit or loss based on the change.

Bankers bitterly complained that the current market prices were the result of distressed sales and that they should be allowed to ignore those prices and value the securities instead at their value in a normal market. At first FASB, pronounced FAS-bee, resisted making changes, but that changed within a few days of a Congressional hearing at which legislators from both parties demanded the board act.

This is just one example. In other words, as a result of the bailouts and the changes to the accounting rules, it is nigh on impossible to work out exactly where any real profits might lie. Quite simply, nobody but the banks themselves and the Federal Reserve, and perhaps other arms of the government, can untangle the real state of the banking system. However, it is almost certain that the sudden profitability of the banks is rooted in the various bailouts and accounting tricks. Whilst it is quite plausible that many parts of the Goldman operations are profitable, the overall genuine profitability is buried in the accounting and the bailouts.

Krugman identifies the complete opacity of the situation as follows:

I won’t try to parse the competing claims about how much direct benefit Goldman received from recent financial bailouts, especially the government’s assumption of A.I.G.’s liabilities. What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.

Under such conditions, it is no wonder that so many commentators are calling 'foul' over the massive bonuses that are going to be paid out by Goldman Sachs to their employees. However, the underlying problem remains as to why all of this has taken place. Why have the changes to the accounting rules taken place, and why are toxic assets being taken off the hands of the banks, thereby transferring risk from the private sector to the state sector?

The argument has been that certain financial institutions are 'too big to fail', but the reality is that the various government measures to support the situation is entrenching the system in which the large financial institutions threaten the financial system. With each bailout, with each measure, they undermine the market forces which might discipline the banks, creating ever more public exposure to private risk taking. In doing so, they simply embolden the banks to take further risks.

As was identified at the start of the process of the bailouts, there is an inherent moral hazard in bailing out banks, in that they cannot lose. They become a one way bet, and that will, however much oversight is applied, eventually lead to complacency, and excessive risk taking. It is now apparent that, under the current system, profit is guaranteed by public institutions. The worst case scenario for the major banks is that they might have a few quarters of poor or no profits, but there is an implicit guarantee that the government will do whatever is necessary to engineer a return to profitability. There will be no more Lehmans in the future, as the new regulatory regime will never allow another major bank failure for fear of a repeat of this crisis. One way or another, the 'too big to fail' banks will be immune from any major losses.

The solution given by many, like Krugman, is more supervision and regulation. However, if a bank is 'too big to fail', with proposals for special levels of supervision as a result, it will become to be seen as the 'safest' kind of bank. If a bank is seen as 'safe', it will offset any measures such as stronger capital adequacy requirements through being able to raise finance more cheaply, and through the state guarantee will win more business, and the result will be to just get bigger, and consolidate ever more risk into a small number of institutions. The crisis has already seen a consolidation in the number of major banks, and this process is likely to continue.

The problem is that the same regulators who failed to see the risks in the current system will be responsible for regulation under any new system. Whilst they might (possibly) be able to spot the kind of risks that caused the current financial meltdown, what is to say that they will be able to spot the risks that arise in the next particular set of economic circumstances? The difference is that, next time around, it is more likely that there will be even more concentration of risk in a few major institutions, and therefore even greater system-wide risk.

If you doubt what I am saying, take a look at one of the key policy makers discussing the state of housing and the financial system pre-crisis. I found this video of pre-crisis statements by Bernanke on Reddit recently. For the many out there calling for more regulation, you will need to think about how the regulators might be able to identify risk, when the record of policymakers is so abysmal. Quite simply, the policymakers who will formulate the regulation are clowns dressed up in important titles, armed with mechanistic formulae and jargon.

Whilst all of the shenanigans continue in the financial sector, the 'real' economy in the US continues to bleed. At some point in time, it is the real economy that will have to pay the price of the salvation of the 'financial system'. Again, I find myself agreeing with Krugman:

The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it’s bad news for almost everyone else.

The fact is that, one way or another, the 'real' economy will eventually be paying for the profits at Goldman and the massive bonuses, and that 'real' economy is already suffering extreme pain. In the meantime, it is not apparent that the 'salvation' of the financial system has translated into salvation of the economy. For all the talk of 'green shoots', the US economy continues on a steady descent, with all the pain that means for those working in the 'real' economy.

The panic engendered when the financial crisis hit is now over. I argued against the bailouts at the time that they were taking place, at that moment of panic. I argued that the resource being poured into the banks would be needed whilst the economy restructured. I argued that the bailouts would continue on from those that were proposed at the start, and that is what has taken place. And.....every single $US that has been poured into the rescue of the financial system will one day be repaid in taxation from the 'real' economy. I argued against the bailouts on this principle.

All of this, hidden in opacity, has led to a point at which insolvent banks are now able to make a 'profit'. Exactly why has this massive bleeding of resources into insolvent banks been allowed to take place? Where exactly is the salvation of the real economy, the pot of gold at the end of the rainbow of the financial system? Like the pot of gold and the rainbow, if we just go a bit further.....we might just find the pot of gold.

In this terrible mess, the point that is forgotten is what a financial system is actually really for. It only exists to allocate accumulated capital and provision of insurances; the financial system should be a support to the real economy, by efficiently allocating capital. It is entirely unclear how pouring trillions of dollars into insolvent institutions, capital which will eventually be taken out of the 'real' economy, might facilitate this. The 'real' economy is now expensively supporting the financial system, rather than the financial system supporting the real economy.

It seems that this is the exact opposite of what a financial system actually should be doing. It is simply beyond any reasonable explanation.

It is the same policymakers who are supporting the financial system at the cost of the economy who will be formulating the new regulatory framework. It is the same policymakers who failed to see the risks inherent in the financial system that will be overseeing and regulating the future risks in the financial system. It is the same policymakers who have overseen the consolidation of the banking system into fewer hands, who are engineering a system in which banks will be ever more concentrated. It is the same clowns who were responsible for the current mess in the financial system, who have engineered that insolvent institutions make profits, that will suddenly have the wisdom to create a 'safe' financial system in which major risk is banished.

It is not an encouraging prospect.

Note: The use of the term 'real' economy is a convenience, as the financial system is actually part of the real economy. As such it is used simply as a way of saying that I am referring to the provision and exchange of services and goods outside of the financial sector.

Comments

[Davewmart:]

The idea of taking some real control of the banks and splitting them if they are too big to fail seems to be gaining ground more in Europe, where it seems the banks are less in control of the political process than in the States.
Here is the position in the UK:
business.timesonline.c...
business.timesonline.c...

Jul 19 07:57 AM

[Popham:]

Thank you for such a definitive analysis of the 'financial sector',
Goldman Sachs and regulation. There is clearly more than meets
the eye here. The machinations and "jargon" spewed out by Wall St. combined with government bailouts, surprise profit-taking and the forthcoming excessive bonuses, will in time, serve to enlighten
the general public, as to who actually holds the purse strings of this
country.
Interesting to note here that in August, the White House will be taking its summer vacation at Martha's Vineyard, where most of
the senior executives of Goldman Sachs have lavish homes.
Coincidence? We think not.

Jul 19 08:11 AM

[Economyst:]

Regulation will not solve the problem of fractional reserve banking. A lesson in economic history and the history of money and how todays money supply is actually created through the money multiplier effect and low or non existent reserve ratios. The fact that banks can lend money they do not have is the real cause of inflation and indebtedness.

Jul 19 08:57 AM

[fireball:]

i do not think the fed will improve the convoluted system. it is to the advantage of the owners of the fed and "financial superstars" if things stay complicated.
the purpose of the illegal unconstitutional fed is to bleed the wealth from this country into the hands of the owners of the banking cartel.
bonses are a distraction. how much money and how fast flowed from the u.s. in the aig bailout? didn't it flee straight to foriegn banks?
sorcery and magic are usually distraction and deception.

Jul 19 10:28 AM

[OldLimey:]

Those who have bought and paid for what used to be the finest democracy in the world are now showing utter contempt for the (surprisingly) silent majority who fund it. Very sad.

Jul 19 10:41 AM

[Davewmart:]

I like the style of the French - they just occupy the factory and threaten to blow it up!
The American worker is too beaten down.
In France the establishment know that if they go too far, Madame La Guillotine awaits!

Jul 19 11:12 AM

[pigdog67:]

Its all just a temporary fix anyway. America is done. The people at the top are grabbing what they can from the savings and pensions of the suckers in the middle. Where do you think those Goldman Sachs Billions came from. Goldman can only swindle money from others. They do not create wealth by producing real 'goods or services'. Its a zero sum game. BRIC will move on because they create real wealth and America will become totally irrelevant. I feel sad because I immigrated to this country. Even with California going bankrupt nobody seems to get what deep dodo the country is really in. The public service employees there are threatening a strike. The country is bankrupt. Our economists talk about a recovery "in this country". That will take 20 years and our real incomes are going to drop 50-75%. We are becoming Argentina. Try to buy a decent plate. Yes a dinner plate. I went through many that chipped within a week from China and Portugal. I finally threw up my hands and bought some from Germany. At 20$ a plate. They do not chip. Hopefully I can pass them on to my daughters. So to buy something of value you have to pay dearly. That shows how much our living standards have really dropped. People are fooled by the cheap 'substitute' crap that they can buy. If I buy 4 plates at $5 a plate and they all chip within 2 months then I was better of buying one plate for $20 that lasts 10 years without chipping. But my true standard of living has dropped.

Jul 19 12:03 PM

[jj Roberts:]

Excellent well thought article about the big banks. Little banks on main street will suffer in the next wave of economic destruction while the big banks are supported. Sounds like the Golden Calf Syndrome- The community (State) supports at all costs what it perceives to be its god. Yes our God gives us life, liberty, and the pursuit of happiness; but we have to exercise dominion in our lives to find the fruitful fulfillment. The moral hazard enters a society when the State becomes our god to grant us our every need (too often know as "wish"). Statism will give us our education (about half of each state budget in America). It will give us a retirement income (Social Security is about 30% U.S. budget). It will give us food (30 million people in the U.S.{10%!!!!} on food stamps). It will give you health care (Medicare and Medicaid {etc.} in 2008 paid 47% of all care in U.S.). It gives housing, energy, banking, transportation, clothing, etc.! Name a category and it gives something away. As long as the general populace look to the State to care for and protect them, the government and Federal Reserve (Fed) will keep propping up the banking system. They will do whatever it takes to solve any crisis even though the pathway chosen may often compound the problem. The root of our current crises exists in DEBT. Until we have the courage to uniformly destroy debt through forgiveness, i.e. bankruptcy, on a scale never seen in our country's existence, we will continue on with the government subsidy to insolvency and destruction of productivity (Thank God for the technological explosion of the last 50 years. If it had been stagnant think of how poor we would be. Maybe this has masked the extreme confiscation of wealth that has taken place). In the crisis we have shifted corporate debt from a smaller one to a larger one. We have taken bad investments and loans by large banks (all the "too small to exist" banks get sold off) and placed them in the Fed or guaranteed them through the taxpayer trying to buy time until the system can produce its way out of the trouble. All too often this approach perpetuates the inevitable (death/ destruction/ bankruptcy). As a country we refused to bankrupt the insolvent banks and insurance companies because we were afraid of the economic pain it would cause. So instead of taking the immediate pain of those losses by bankruptcy of those mega institutions, we now face the continued decline of economic productivity into the future. (To be continued.)

Jul 19 12:04 PM

[CautiousInv...:]

From John Maudlin's latest weekly letter:

In the first few years of the G.W. Bush administration, the banking authorities decided it would be OK to allow five banks to increase their leverage from 12:1 up to 30:1. Which five banks, you ask? Bear Stearns, Lehman, Merrill Lynch, JPMorgan, and Goldman Sachs.

Five years later, three of these institutions are effectively gone; the anointed ones face 60% less competition, making it much easier to make money with or without relaxation of accounting standards.

Compared to five years ago, the industry is more concentrated and the remaining institutions pose disproportionately more systemic risk. The critical policy question is why government is actively pursuing a policy under which the too big to fail are encouraged to exist?

The answer is rather straightforward. First, these large institutions are more or less part of a privileged oligarchy and their interests comfortably co-exist with those of the administration and its various departments and agencies. Secondly, having institutions that are too big to fail affords the administration and Congress the eagerly awaited opportunity to make government bigger through greater oversight and the creation of a new council.

When was the last time the government threw away an opportunity to grow?

Jul 19 12:22 PM

[John Lounsbury:]

To the author - - -

You wrote:

"In this terrible mess, the point that is forgotten is what a financial system is actually really for. It only exists to allocate accumulated capital and provision of insurances; the financial system should be a support to the real economy, by efficiently allocating capital. It is entirely unclear how pouring trillions of dollars into insolvent institutions, capital which will eventually be taken out of the 'real' economy, might facilitate this. The 'real' economy is now expensively supporting the financial system, rather than the financial system supporting the real economy.

It seems that this is the exact opposite of what a financial system actually should be doing. It is simply beyond any reasonable explanation."

No one has ever summarized the problem better. Many kudos!

I have likened (in another comment) GS and the financial sector to a giant syphon suctioning money out of the real economy. Like Ross Perot's giant sucking sound (in the 1990s) of jobs leaving the U.S., we have the same sound now with a different purpose.

I wish you had millions of readers, if only just to read the brief exerpt I found so well stated.

Jul 19 12:48 PM

[Clive Corcoran:]

The one point that I would differ with you on is the following:

"There will be no more Lehmans in the future, as the new regulatory regime will never allow another major bank failure for fear of a repeat of this crisis."

In these chaotic times when one has to think the unthinkable it is probably more true than at other times to never say never!

Jul 19 01:52 PM

[MarvinMBA:]

Probably buying gold might not be such a bad idea. Hoard oil too.
MarvinMBA

Jul 19 05:03 PM

[Cynicus Eco...:]

Clive:

You are, of course, quite right. In the current circumstances anything might happen. Thank you for highlighting the uncertainty that still surrounds the financial system.

Other Comments:

Many thanks for the comments. It seems that there is considerable antagonism directed towards the way in which this economic crisis is being handled. My worry is this. Just by being readers of something like Seeking Alpha, you are all by definition 'well informed'. The real question is how to raise these concerns and engage a wider audience. I was struck by John's comment, that this is the real problem. I am not alone in holding cynical views, but am not sure that our views are reaching out of a narrow niche.

Jul 19 05:07 PM

[whidbey:]

You said, "The panic engendered when the financial crisis hit is now over."

I Question: Over or merely controlled a little better? The angst is very real for those who understand where we are: we have yet to sort out alternatives to the existing system. Krugman, for example, wants to essentially set limits for a game he does not know how to play, which is the problem for most who think regulation is the key.

All could go to pieces again quickly if it becomes clear that nationalization is the preferred option for banks and financial institutions. That might be the case under Obama, we can not say as yet. The panic is in abeyance, not over by a great deal until some basic questions are answered in detail. Triage is a fix, just a start.

Jul 19 05:18 PM

[rosey99:]

Nice post. I too am amazed to see the economy "turned upside down." What was formerly in the business of efficiently allocating investment resources has become a millstone around our collective necks.

I'm coming around tot the view that not a single large problem we face in the US, not one, will be solved until we deal with the system of legalized bribery we call politics. If we are unable to reform our own political process, we will end up where the corrupt usually end up - in the dustbin of history.

Jul 19 05:43 PM

[md6888:]

'Too big to fail' was 1st realized by GS's x-PH, as 'crisis too good to be wasted', while WMD (words of mass deception) was practiced & executed to perfection (promoting sale while shorting same). Should S stand for 'Spectre'? Just my opinion.

Jul 19 05:49 PM

[Leftfield:]

Maybe DC stands for "demonic control."

Jul 19 06:04 PM

[nova:]

At the top right hand corner of Page 17 of the New York Post of January 24th, 2009 , was a short column entitled "Replacing Michelle" in the National Review "The Week" column.

I found this interesting, so here it is, word for word, as it appeared:

Replacing Michelle Obama

Some employees are simply irreplaceable. Take Michelle Obama: The University of Chicago Medical center hired her in 2002 to run "programs for community relations, neighborhood outreach, volunteer recruitment, staff diversity and minority contracting" .

In 2005 the hospital raised her salary from $120,000 to $317,000 - nearly twice what her husband made as a Senator.

Oh, did we mention that her husband had just become a US Senator? He sure had. Requested a $1 million earmark for the UC Medical Center, in fact. Way to network Michelle!

But now that Mrs. Obama has resigned, the hospital says her position will remain unfilled. How can that be, if the work she did was vital enough to be worth $317,000?

Let me add that Michelle's position was a part time, 20 hour a week job. And to think they were critical of Blagoyovich' s wife for taking $100,000 in fuzzy real estate commission.


I hope this is forwarded so many times that the media will HAVE to cover it.

Jul 19 06:37 PM

[Henry Buttal:]

Cy,

A lovely piece, well thought out. I imagine most of the SA readers and contributors have concerns about both the financial system and the government right now.

I would like the see banks be banks, and investment banks be investment banks. There are plenty of future profits in each sector, and if you choose to be an I bank, weell, you take large profits, you should assume more risk. A return to that model, with a dose of moral hazard, would work for me.

As for the adminstration, it is a problematic sign when Krugman, and other long time faithful are offering counsel in print in the WSJ

online.wsj.com/article...

Jul 19 06:40 PM

[CanadianInv...:]

Excellent article! Some seem to think "forced break-ups" of financial institutions is the answer but fail to see they are addressing the problem of over-regulation with more regulation. Government should get out of the banking system altogether and allow a pure free market banking system to grow, where the banks are funded based on their own abilities and not allowed to be perpetually insolvent as is the current situation.

It's the government involvement and regulation that promotes "too big too fail" institutions, not only in banking but auto's and insurance as well.

Jul 19 06:48 PM

[Gregman2:]

The real question is: to what extent is Goldman connected to a system that just under went systemic failure, and required a bail-out for its very susrvival? It would seem that dollars earmarked for bonus pay-outs would be best retained for later reserve requirements. Small
businesses retain such earnings for rainy days funds. Goldman should do the same...it would be the prudent thing to do. That way, there would be assurance that no future bailout would be needed.

Jul 19 06:54 PM

[Tom Armistead:]

"The use of the term 'real' economy is a convenience, as the financial system is actually part of the real economy."

It is hard to discuss the financial system as it currently functions without resorting to a distinction from the "real economy." Synthetic securitizations, arbitrage, the proliferation of derivatives...all have an aura of unreality about them.

It's about autonomy - the financial system is dominating the economy, when it should be a servant, allocating capital. The financialists answer to no-one. It's about fundamentals - the financial system needs to be returned to its primary purpose of helping people work, save and invest. Instead, it has become a bloated parasite, sucking the lifeblood out of the "real economy."

Jul 19 07:46 PM

[TinyTim:]

Nice read.
GS is thumbing their collective noses and many don't like it.

While I can forgive some poor decisions (in reflection) at the height of the panic (they don't call it a crisis for nothing), the further along we go toward stability, the more it appears that the necessary corrective actions are not going to happen.

As you say, it appears just the opposite:
"various government measures to support the situation is entrenching the system in which the large financial institutions threaten the financial system."

I was expecting by now to see some government response to allegations of regulatory capture (up to and including Obama) and the issue of TBTF / moral hazard.

At this point, I'm wondering if the decisions to inconsistently bail out instead of BK troubled financial institutions was planned.

Jul 19 07:52 PM

[dcb:]

while the SA community is educated, you take articles like this and send them to friends, you urge them to write their congressmen, you write the white house. You ask that an author of an article like this post an ipetitions link that can be sent too congress and the whaite house demanding more be done in terms of regulation to reduce systemic risks, you make people very angry at the government.

those are the things you try to do about it.

Jul 19 09:25 PM

[rdd:]

I supported most of the financial moves in 2008 as necessary to prevent an uncontrolled implosion of the financial sector. However, I viewed them as stop-gap measures to be unravelled after the system is restructured following something like the Pecora Commission in the Great Depression.

I think the big collapse has been the unwillingness of the political class to investigate the system, which could include themselves. Barring some clear disclosure over the next year or so of what happened from 2005-2008, it will be impossible to put a stable structure back together.

It appears that the powers in Washington and NYC want to punt and pray that there won't be another financial sector implosion. I fear that this will make it more likely that another one will occur within a decade than 70 years later like what happened after the Great Depression.

Jul 19 10:46 PM

[spontsymm:]

naked financial incest, ugly isn't it?
oligarchical aristocracy is alive and well.
I pray we get the casino's out of the banks soon.
derivatives enable systemic fraud.

Jul 20 12:34 AM

[Crocodilian:]

There's a lot of interesting thought in this piece.

What I would say is this: Goldman's profits have _always_ been earned by passing risks and losses to dumber firms. That is, Goldman is and has been profitable, precisely because AIG were morons.

Seen in that light, Goldman's profits look less cheerful-- for anyone who's not Goldman. Essentially they're a sharp player, who keeps inviting morons to play poker with them; and the morons have a claim on us.

As author writes, there is a disastrous moral hazard here, in that Goldman will keep encouraging "games of risk" which it plays better than other participants. It is in our interests as citizens and taxpayers that these games stop, but that is not GS' interest.

Jul 20 01:04 AM

[curious cat:]

too big to fail, too small to survive, from wall mart to wall street, when it comes to crushing the rights of others, size matters. that's why we generally don't condone monopolies in a free market. they are anti-competitive and even near monopolies have the ability to counter free market forces.

why do japanese companies join together? they know that size has advantages. is it possible, then, that goldman is our entry in the ultimate power struggle, the battle to see who controls the money? does america benefit from GS' ability to compete as a larger player in the field of dreams? when it comes to the world stage of money, can we really afford to downsize our best?

Jul 20 01:58 AM

[Moon Kil Woong:]

If GS wanted to do us a real favor they would keep the profits to boost their capital to make ther VaR more reasonable so they wouldn't have to ask for special wavers.

This, however, would mean that the capital would remain in GS to cover losses if their bets fail and violates their whole concept of gambling on a table they get paid out when they win and are absolved of any loss when they lose.

My gosh, if they actually had to keep a decent capital reserve they would actually be gambling with their own money and taking real risk. Posh posh, that's not how well connected people work.

Jul 20 06:30 AM

[asceptic:]

Good comment and there are many in a similar vein. For all those wondering what is the meaning of life and the purpose of the universe, it must surely be to make Wall St. bankers rich.


On Jul 19 10:28 AM fireball wrote:

> i do not think the fed will improve the convoluted system. it is
> to the advantage of the owners of the fed and "financial superstars"
> if things stay complicated.
> the purpose of the illegal unconstitutional fed is to bleed the wealth
> from this country into the hands of the owners of the banking cartel.
>
> bonses are a distraction. how much money and how fast flowed from
> the u.s. in the aig bailout? didn't it flee straight to foriegn banks?
>
> sorcery and magic are usually distraction and deception.

Jul 20 06:53 AM

[Michael Clark:]

Maybe GS stands for 'Get Satanic'.


On Jul 19 06:04 PM Leftfield wrote:

> Maybe DC stands for "demonic control."

Jul 20 07:07 AM

[Sober Realist:]

LOL. Thanks for the laugh.


On Jul 20 07:07 AM Michael Clark wrote:

> Maybe GS stands for 'Get Satanic'.

Jul 20 07:09 AM

[TradingHelp...:]

1st class article. There is a morally corrupt theme running through the US (and UK) economy. Never have we seen such an episode where so much tax-payers wealth has been passed to one sector, so devoid of sensible regulation, supervision, risk controls and morals.

Jul 20 07:14 AM

[doubleguns:]

Prior to every country collapse the money gets carted away by the corrupt connected elite.

GS is exhibit one.

Jul 20 10:58 AM

[yellowhoard:]

Good stuff Cynicus!

Consider me a follower.

Jul 20 11:18 AM

[DC Financial:]

This sounds hauntingly reminicent of the IMF (International Monetary Fund) bailouts of various international markets in the late 1990's. Investors saw their risk being assumed by the IMF and other banks/countries--that is until they lost their bets in Russia, and the IMF bailout only made things worse.

We The People have just assumed a huge Catch 22 by beginning a government-guaranteed capitalist system. As the article says, banks and investors will count on governments "cleaning up the spills" when they calculate their risks, and We The People will pay dearly for it, but not so dearly as the day we "rip off this band-aid" and choose not to bailout anther AIG, at such time we will see another 2008 (or 1929). Hopefully, despite our best efforts, we will fail to collapse the market entirely. . .time will tell.

Jul 20 12:33 PM

[goldhammer:]

From the article:
"The 'real' economy is now expensively supporting the financial system, ... It is simply beyond any reasonable explanation."

"How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth?" -- Sherlock Holmes in The Sign of the Four

So, what is the improbable thing that must be true?
/Goldhammer

Jul 20 12:47 PM

[nobby73:]

...a government of the bankers, by the bankers, for the bankers...

Jul 20 04:03 PM

[Iconoclast421:]

I wouldnt rely to heavily on the "too big to fail" mantra. I believe Goldman Sachs will meet its very timely demise within 2 years. And THAT will mark the bottom of the depression. It all comes down to one thing: Fear. Right now, the banksters operate without fear, and thus with impunity. Sooner or later, the general public will instill a very palpable sense of fear in all these criminal CEOs and board members. Either that, or the general public will just stand there and be sheared until they have no skin left. I doubt that.

Jul 21 01:16 PM

[asceptic:]

Fair comment, but the problem with the public and public opinion is it can be easily manipulated by the media. If the media keeps plugging a particular message long enough everyone will ultimately believe it, regardless of the truth. Therefore the general public will most likely be ineffective.


On Jul 21 01:16 PM Iconoclast421 wrote:

> I wouldnt rely to heavily on the "too big to fail" mantra. I believe
> Goldman Sachs will meet its very timely demise within 2 years. And
> THAT will mark the bottom of the depression. It all comes down to
> one thing: Fear. Right now, the banksters operate without fear, and
> thus with impunity. Sooner or later, the general public will instill
> a very palpable sense of fear in all these criminal CEOs and board
> members. Either that, or the general public will just stand there
> and be sheared until they have no skin left. I doubt that.

Jul 29 09:00 AM